Recent trend of world trade and Sri Lanka’s international trade

FCCISL Trade Watch

According to the statistics compiled by the WTO, the world merchandise trade increased by approximately 25% in the first six months of 2010 (January to June 2010) compared with the corresponding period of 2009.

However, this increase should be cautiously viewed in the context of the 12% decrease of world trade recorded in the year 2009 and particularly the sharp decrease of international trade during the first half of year 2009.

Furthermore, the volume of international trade remains at present far below the peak level reached in mid 2008 before the global financial and economic crisis. In other words, the value of global merchandise exports remains about 15% lower than its mid 2008 peak.

According to WTO, exports were increased by 35% in the Asian, African and Middle East regions on account of increased demand emanating from the domestic markets of Asia and USA and also due to high commodity prices recorded during the period under review. The CIS countries posted a buoyant 44% export growth.

Similarly, extra EU exports (EU trade with the rest of the world) were more dynamic but intra EU trade (trade within the 27 EU countries) recorded a decline due to the slow recovery of EU countries consequently to economic downturn of 2008/2009. These statistics suggest that the economic recovery is more evident in the Asia and Middle East regions than in the EU while the US is showing modest recovery following the recent economic downturn.

In July, China’s Trade surplus climbed to US$ 28.7 billion, the largest since January 2009. In contrast, the US Trade deficit for both goods and services jumped by 18% between May and June reaching US$49.9 billion. The US Trade deficit with China alone increased to US$ 26.2 billion in the month of June. Another major trading nation, Germany — the third largest exporter of the world — has been accumulating a growing trade surplus mainly due to the weaker Euro.

Following faster than expected recovery in the global trade flows so far in 2010, the WTO economists have revised their projections for the world trade growth in 2010 upwards to 13.5%. Merchandised exports of the developed economies are predicted to expand by 11.5% in volume whilst exports from the developing economies and CIS countries are expected to record an increase of 16.5%.

In the background of these developments of the international trade, the cumulative earnings from exports and expenditure on imports in Sri Lanka have increased by 14% and 42% respectively during the first six months of 2010 resulting the expansion of the trade deficit to US $ 2,844 m during the period.

Although the earnings from exports of textile and garments increased by 24% during the month of June, the cumulative exports of garments during the first half of this year decreased by 2.5% from US$1,536 m in January-June 2009 to US$ 1,498 m in January-June 2010.

The sharp increase of exports of apparel products during the month of June may be attributed to the increased seasonal demand received particularly from the US and EU and orders placed by importers before the expiry of the GSP tariff concession.

Earnings from export of rubber products also increased by 110% to US$ 52 m mainly due to the increased volume of value added rubber exports such as rubber tires and rubber gloves to the Western Market. Tea exports have also recorded a sharp increase of 24% during the first half of this year due to favourable prices and increased volume of exports.

Expenditure on imports increased rapidly during the first half of this year, mainly due to the higher expenditure on petroleum products which increased to US$ 77 per barrel.  Import expenditure on fertiliser also increased due to the substantially higher imports volume.

This is a good trend as application of fertiliser would further enhance the agriculture productivity of the country despite the fact that the fertiliser subsidy may adversely affect the public finance and the budget deficit. In the non food sector, imports of motor vehicle and electrical equipment maintained a high volume of imports due to restructuring of import tariff on those items. Imports of investment goods also increased by 30% led by heavy vehicle and transport equipment imports.

The auto trishaws imports increased by 257% and imports of building materials also increased by 35% during the month of June indicating the certain revival of the construction sector. The composition of the imports structure depicts a salutary development where 76% of the total imports consisted of intermediate goods (57%) and investment goods (20%). Workers’ remittances recorded an increase of 13% during the first half of 2010 to US$ 1,820 m.  

The gross officials’ reserves stand at US$ 5.7 billion demonstrating a stable external assets and monitory balance of the external account.  

The above trend continued to be observed during the month of August as well as for the period of eight months, ending August 2010.  The aggregate value of exports increased by 11% and the value of imports also increased at a higher pace of 37% during the first eight months of 2010 registering trade deficit of US$ 3.6 billion during the period.  

Earnings from agriculture exports registered a remarkable growth due to the increased value of exports of tea, rubber products, machine and equipments and spices and allied products mainly due to the favorable international market prices of those commodities witnessed during the period under review.  Industrial exports declined marginally led by lower exports of textile and garments by 4% during the period of January to August 2010.  

However, the increase of imports of textile and clothing by 27% during the month of August indicates the potential growth of apparel exports in the coming month. The increase in exports of machinery and equipment was mainly due to the export growth registered in the transport equipment such as boats and bicycles and electrical equipment such as electrical transformers and insulated cables.

This trend could be viewed as a salutary development for diversifying of our export basket in the future.

The workers’ remittances continued to demonstrate a growth trend of 12.5% over the corresponding period of 2009 to US $ 2.1 billion during the period of January to August 2010.  

In the context of the recent global trend of the international trade arena, it re-emphasises the necessity for diversification of Sri Lanka’s export markets and the basket of exports.

Sources:

The World Trade Organization

Central Bank of Sri Lanka

Research and Policy Advocacy Division

Federation of Chambers of Commerce and Industry of Sri Lanka

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